Onsale Sees Strong Second-Half Revenues Dave Marino-Nachison (TMF Braden)
August 19, 1999
Shares of online retailer and auctioneer Onsale Inc. (Nasdaq: ONSL) got a nifty boost to the tune of about 10% today after the company gave investors some guidance concerning its projected Q3 and Q4 results.
Although Onsale didn't provide specific earnings per share guidance in its press release, it did discuss revenues, margins and operating costs in some detail. Here are the vitals:
Sequential-quarter revenue growth is seen at between 8% and 12% for Q3 and between 15% and 20% for Q4. That compares with 14% and 2% for the Q3 and Q4 last year, respectively. Gross margins for both quarters are expected to fall in the 5% range, versus the 9% range for the same periods a year ago, not thrilling news.
Marketing expenses are expected to balloon, ending up around $14 and $15 million for the third quarter and between $17 and $19 million in the last three months of the year. Those numbers are significantly higher than last year -- we're talking double or better.
All told, investors should probably be guardedly optimistic -- at best -- about the news. Onsale is plowing millions into a beefed-up advertising campaign (television and radio) coming out later this year, which explains the boost in marketing costs. If the company's expected rise in the engineering, general and administrative line indicates that it's gearing up (equipment and staff-wise) for a boost in business, the preemptive step -- and heads-up to investors -- is welcome.
Further, the growth of Onsale's launched-in-January AtCost wholesaler/advertiser business -- which at the end of the second-quarter represented nearly 30% of sales -- requires strong promotion to attract the sponsors that fund the concept.
Today's announcement doesn't figure in the effect of Onsale's planned assimilation of software e-tailer Egghead.com (Nasdaq: EGGS), meaning it neither reflects the companies' combined operations nor any costs pertaining to the deal. But as a measure of the continuing strength of Onsale's operations, it's a pretty good indicator that the cash registers should be ringing good 'n' loud this holiday season.
But with margins seen shrinking because of ramped-up costs, profitability still seems some time away. Investors haven't been too hot on shares of Onsale this year; it remains to be seen whether today's move was the beginning of a big gulp or just a hiccup.
Notably, many on Wall Street weren't impressed with today's news. According to CBS Marketwatch, the revenue projections failed First Call's analyst estimates; several analysts have pulled their second-half loss estimates even further into the red following the announcement. Reports have the market's projected Q3 and Q4 losses falling to $0.84 and $0.99 per share from $0.67 and $0.72 per share, respectively.
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StockTalk Interview With Onsale CEO Jerry Kaplan, 2/11/99